SBA & alternative funding options with Chuck Crumpton, CEO

Clear, concise, and valuable information about all things SBA and alternative funding options. Are you starting a new business or need capital for your existing operation? We break it all down here. 

Please let us know how we can be of value for your business. BullStreetMergers.com

Thanks for listening, enjoy the show.

Chuck Crumpton
[e-mail]

Episode Transcript

Speaker 1 (00:12):
Thank you for tuning in to another episode of The
Chuck Crumpton Show, a non for profit podcast making a
difference where conversations are real and raw. We are grateful
for your support as we build one of the fastest
growing podcasts in the US. Please subscribe. More information can
be found at the Chuckcrumptonshow dot com. Thank you for listening.

(00:33):
Here's Chuck.

Speaker 2 (00:34):
Thank you, Julie. Good afternoon. This is Chuck Crumpton and
welcome to another episode of The Chuck Crumpton Show. Today
is a special version of the show as we do
a look in on a recent webinar from the business
owner's form on another topic critical to small business. We
publish a webinar every week and we'd love to have

(00:56):
you join us for one. I love business and I
believe that small businesses in America with two to two
hundred or so employees is the engine that drives our
world economy. At Bull Street Mergers, we are practitioners of business,
not m and a professionals driven by theory. All members

(01:18):
of the forum will receive today's webinar without cost. More
information about the forum can be found at Bullstreet Mergers
dot com. Please enjoy the show. Good afternoon, and welcome
to the Forum webinar series powered by bull Street Mergers.
I'm Chuck Crumpton, CEO of bull Street, and I'm excited

(01:40):
about today's topic. Is SBA the right option for your business?
We're going to talk about SBA and some alternative financing.
And the reason I'm excited is because cash is king
and it's really important. I see a lot of my
clients that are just drapped for cash flow purposes or

(02:03):
for working capital purposes, and so funding, getting investors, talking
to banks, SBA to investors is really really important. Remember,
all members of the form will receive a free and
full copy of today's presentation. More information about the form

(02:23):
can be found at Bullstreetmergers dot com. We are honored
that you're here. Let's learn together. I'll be right back. Okay,

(02:44):
let's jump right into this. I'd like to talk about
who is bull Street. That's a big, important, big question
because it lays a foundation of our credibility. I don't
want this to be a big commercial, so I'll buzz
right through this quickly so we can get to the
meet or the matter. But bull Street is one of
the fastest growing m and A firms in the Southeast.

(03:07):
Our tagline, our mission is to help business owners build
and sell remarkable companies. I am very fortunate, very privileged,
very honored to lead our team. I've been through paying
a lot of dumb tacks, stupid tacks, as Dave Ramsey says,
over the years, I've made a lot of mistakes, a

(03:28):
few good decisions along the way, and I've just had
the chances to start and build two of my own
companies that really started from scratch. So I understand the
plight of a business owner, a business leader. I've been there.
I've had months where there was a lot of month
left at the end of the money. I get it.
That's why these issues that we talk about are just

(03:51):
so near and dear to me. Thirty years of executive
leadership from very very small companies too that started in
my toolship to Fortune fifteen companies and just really trying
to make a difference. At Bull Street. We're serving that
lower middle market, really everything under fifty million dollars. We

(04:11):
deploy a very unique approach to M and A. I
call it disruptive m and A where we focus on
both the build and the brokerage. A lot of most
business brokers, a lot of them say, if you're ready
to go to market, let's go to market. If you're not,
call me when you are. I'm a big believer in
let's get your company ready to go to market. Whether

(04:34):
you go today, next year, or in five years, you
are building a business that will sustain itself, will be
highly successful. So we're going to work a lot on
the build. We have seen in our experience when we
look at multiples of EBIDA, which is a component of
metric to when you go to market, we've seen those

(04:55):
multiples move from two x to over six x, and
if you do the math, that's a huge, massive difference
when you go to market and improven methodology that we've
implemented over seventy thousand companies. Some of the clients that
we've been very privileged to serve over the years, some

(05:16):
are obviously much much larger, some are household names, some
are really small. Again, we're in that lower middle market
fifty million dollars and below. And the Forum just birthed
out of this need to surround the small and medium
sized business owners and business leaders with a lot of

(05:39):
just TLC. With the Forum, you get personal executive advisory
every month, either myself or one of our subject matter experts,
just to understand your business, to unpack your challenges, your goals,
your dreams, and have a very strategic approach to building
that business. We offer mastermind and workshops all over the country,

(06:03):
both on site and virtual, where we have a small
group of seven to ten business owners key leaders that
really just unpack the challenges that face us as leaders
and we work through curriculums and iron sharpens, iron mentality.
Those are really really good. The Value Build a Program

(06:24):
is our methodology where we first of all, we understand
what the business is worth. We look at competitors in
our same space, and we just unpack the eight functional
areas of a business and just very systematically every month,
every year show continuous improvements. So we build that company

(06:47):
so it's better and as a member of the forum
you get access to that software which again over seventy
thousand business owners have gone through that. We do webinars
like we're doing today on all all the topics that
are hot and germane to business owners and business leaders
so that we can understand the challenges of running a

(07:08):
business and growing a business and building it with the
option one day of maybe selling it, maybe keeping it,
maybe willing it to our children or whatever. The webinars
are just built around topics that are hot and germane.
We do a weekly Zoom again, members of the forum
can participate in this and it's either audio or or

(07:32):
video the Weekly Zoom, and that's where we just unpack
any question. It's a live zoom meeting, no questions off limits.
You can ask anything along the way and we'll just
unpack those topics. If they're confidential, we take them offline
and we can unpack them individually. But the weekly Zoom

(07:53):
just gives an audience where our members can come and
feel free to ask in a very safe environment, protected
by confidentiality that they can ask any question they have
on business. And we push out every week industry specific
white papers and articles that are pertinent to your industry.

(08:14):
We do a lot of research. We have folks that
do research on our team, and it's really geared toward
the members that are in a particular industry. And I
would encourage you try it for thirty days, no costs,
no obligation. We're not trying to sell you anything. This
is a membership community we're pushing out a lot of value.

(08:35):
We're giving a lot of stuff back to our members.
Try it for thirty days. You get the full the
full manti of everything that we have to offer. If
you like it, stick with us at two ninety seven
a month. You can cancel any time. We want to
make the entry point. The cost the fee of play
very low. And trust me, you get a ton of

(08:57):
stuff for that two hundred and ninety seven dollars a month.
So just give it a try. Now, let's jump into
today's topic. Enough commercial, let's talk about what is SBA,
Why SBA. We're going to look at the benefits of
SBA lending, the types of SBA loans, some alternative funding,
and I'll unpack those. The core of any activity around

(09:23):
getting funds is having a business plan. We're going to
talk about writing a business plan. What are those key components.
I'm going to give you some insight in my thirty
years of doing this, the things that you need to
put in there, things that are important. And of course,
as we go through today's webinar, if you have any
questions at all, email me those questions right now. Throughout

(09:47):
the webinar this afternoon, tomorrow next week. Any questions that
you've got, feel free to email me. I'll answer those
directly and simply. My email is Chuck at Bullstreet Mergers
dot com. So let's talk about the SBA seven A loan.
What's it designed for for acquiring, refinancing, improving real estate.

(10:11):
It's also designed to be short term and long term
working capital. And in my experience, and I see this
every week with the clients that are coming to Bull Street,
there are a lot of deficiencies when it comes to
working capital. The seven A loan program possibly will be
a good fit for you. You can also use the

(10:33):
seven A to refinance current business debt. I had an
application yesterday with a new client. They're currently paying a
very very high rate on their line of credit. The
seven A loan perhaps will unpack it, but perhaps is
a good vehicle to refinance that current business debt, possibly

(10:55):
lower the rate, which will make a huge dramatic impact
on the bottom line and cash flow. It's also used
to purchase machinery equipment. And what's interesting with the advent
and now execution of AI related products and services, you
can use the seven A loan for AI related initiatives

(11:18):
and I can tell you the AI technology, both in
products and services, will just continue to grow and we're
going to need some capital to roll out. If we
don't stay ahead of the curve, we will be behind
the curve. So understanding what AI and what it can do.
We've actually got a webinar coming up soon on how

(11:39):
to implement AI in your business that's going to be
really good. With the seven A loan, you can also
purchase furniture and supplies. We use seven A a lot
of times when we have a buyer come into the table.
We're representing the seller and the seven A is a
good program to have a change of ownership. You're going

(12:01):
to sell your company probably one day, the buyer is
going to come. Hopefully multiple buyers are going to come
to the table, and they're going to want to fund
that acquisition. A good vehicle to do that is seven
A and the maximum loan on a seven A loan
from SBA is five million. Let's look at some of

(12:22):
the qualifications. First of all, it has to be an
operating business. It has to operate for profit. It has
to be located in the US, So the SBA is
not going to fund your operation to acquire a company
in Portugal. Right, it's for companies located in the US,

(12:44):
and they're going to look at income and credit history
and what I recommend. If you are in a position
where you're going after an SBA loan, and we're going
to talk about the five oh four loan in just
a moment, but call me, call one of our advisors,
and let's make sure that as we approach the bank,

(13:07):
the SBA certified bank, which by the way, we have
very good relationships with SBA lenders. We a lot of
times in a very regulatory driven market or industry. You know,
with SBA lending, you have to check all the boxes.
You have to do it right. You have to you
have to you know, complete the application. You can't do

(13:29):
it haphazardly. But before you approach the bank, come to
us and let's make sure we've got all of our
ducks in a row and it will make the application
process a lot better. Come to us about what bank
to go to. There are some banks that are very
very good to work with. We've got some wonderful banks

(13:51):
in the Southeast and nationwide that do SBA lending. We've
got some that don't do it very well. And you know,
use us, work with us and will give you advice
on the ones that are in your indudy or a
drawn to your industry where the application process may be quicker.
Some banks have a fantastic underwriting process, some do not.

(14:16):
Will advise you, we'll we'll give you some guidance on
the banks that are in your industry that are doing
it well where we can have a relationship. We can
actually use that SBA certified bank as a partner right
and not just a loan source. The five oh one
loan program is used for long term and it's fixed rate.

(14:39):
It's available through Certified Development Company CDCs. You know, authorize
providers of the five oh four loan program. Again, come
to us, use us as a sounding board as an
advisor to make sure that we're going to the right bank.
I typically recommend we get a couple of banks in
discussion because their rates are going to vary, believe it

(15:02):
or not, contrary to public opinion, they do have some
flexibility on terms and rates, and if you're using us,
we're going to be able to navigate those waters and
sometimes negotiate a better rate. And a lot of depends
on their initiative. Their KPIs within the bank. Are they
looking for an investment in your industry? Are they looking

(15:25):
for an investment in this particularly geographical area. Come to
us will help you navigate those waters. They can be frustrating,
they can be bureaucratic, So bring us along in the
process and we'll make sure that everything is done with
the right banking partnership. To be eligible for the five

(15:46):
ho four, three things operate for profit, two have a
tangible net worth of less than fifteen million dollars, and
three have an average net income federally of less than
five million per year. The five oh four loan can
be used to purchase land, build buildings, equipment, machinery, that

(16:11):
type of thing. It cannot be used for working capital, inventory, refinancing, debt,
or intellectual property. And the maximum loan currently for SBA
on the five oh four is five and a half
million dollars. Any questions about the seven A or the

(16:31):
five oh four right now email me Chuck at Bullstreek
Murders dot com and I will answer those questions just
as quickly as I can. Let's look at some alternative financing.
First of all, we have micro loans. Micro loans available
through the SBA with a maximum of fifty thousand. Currently,

(16:51):
the average micro loan is thirteen thousand dollars and it
can be used for anything short term. You've got a
payroll to me, or you've got a roof that's leaking.
The micro loan can be executed very quickly and might
be a very good vehicle. Venture capital funding, We're going
to unpack that in just a moment. Can be most

(17:17):
of the time much more complicated. I want to unpack
VC funding because there it's potentially could be a great vehicle,
but it can also there are a lot of you know,
catches in there that we just need to make sure
that we cover all the bases and we become very
strategic when we approach venture capital funds. And we're going

(17:37):
to break that down in just a moment. Another alternative financing,
perhaps is account receivable loans. This is an industry a
lot of different players, different terms, different organizations, have different strengths,
but basically what they do is they look at your
ar your accounts receivable aging report, and if you have

(18:00):
accounts receivable with bonafide verifiable companies, Let's say you've got
five hundred thousand dollars in accounts receivable and you need
two hundred thousand over the next two months for payroll
or again leaky roof or whatever you can borrow against

(18:25):
that accounts receivable typically one to two percent, so the
fees can be high. They are firms that do it
better than others. Again, come to us. We'll help you
navigate those waters. But that may be a better alternative
than going out in pledging debt or getting a home

(18:45):
equity line on your home. The accounts receivable loan may
be an alternative for you. Now let's go back to
venture capital funding. I want to break that down for
you and give you some insight. When you first of all,
find an investor right and sometimes these are called angel investors.

(19:09):
The real key is the reputation of the investor the firm.
There are a lot of venture capital guys out there,
folks out there that do it well, do it with
high integrity, the way we operate Bull Street with high integrity.
There are some that are frankly just shysters. So do

(19:29):
your research again, pull us in. We can. We can
give you the background on the management of the VC firm.
We can tell you if they're legit. We'll look at
their past investment portfolio, their history, who they've done business with,
done deals with, you know, do your research, make sure
that you link because these are going to be folks

(19:51):
that will be in your business. We're going to talk
about that in a moment, but make sure you link
up the right partner because you want to dam with
the right partner, Otherwise it's going to make for just
a terrible frustrating life. Share your business plan, and at
the core of any kind of funding or lending or

(20:13):
partnering for capital, there will be a need for a
business plan. That's why I'm going to unpack that in
just a few minutes. I'm going to give you tips
insights on how to build that business plan. But in
that business plan, the criteria will include the industry that
you're in. Some venture capital firms are drawn to certain industries.

(20:35):
Some are not drawn to certain industries. Right, so we
want to understand that what I call the flavor profile
of that venture capital firm, and whether they tell you
or not, they all have a flavor profile. They're looking
for certain industries. There are certain industries that they will
just not touch. So when you're looking out of an

(21:00):
capital fund, they're going to look at your industry to
make sure it's a good fit. They're going to look
at where you're located. There are some VC funds that
operate only in the Northeast. There's some that operate only
in Atlanta, some in the Midwest, some in the Southeast.
They're going to look at the at your location, where
you're located, because that may not be on their heat map.

(21:23):
They may not want to invest on the West Coast,
So that's a big deal. When you build your business plan,
where you're located is really big. Your stage of development.
Are you pre revenue, are you post revenue? Do you
have products or services in your pipeline. They're going to

(21:44):
look at where you are, what you've done, and where
you're headed. Those are just essential elements in that business plan.
And again we're going to impact that in just a moment.
In the due diligence process, investors are inspecting several things.
They're going to be looking at your management team. That's
going to be a critical component because if your management team,

(22:09):
and it could be three people on your team, could
be thirteen people on your team. But they're going to
look at your management team because they are giving you
their money and they want to make sure from an
arms length away that your company is able to be
stable and survive and to thrive. And the management team

(22:29):
is a big, big component. So they're gonna be looking
at that. They're gonna be looking at the market, your
particular business. You're in XYZ industry, what is the industry
doing from a market standpoint. They're going to be looking
at that. They're going to be gathering all your corporate
documents and looking at all the finances. They will turn

(22:53):
over every rock. And this is a real art to
do in due diligence, because what happens when the potential investor,
your potential partner comes to the table, they will do
they will ask for certain documents, and typically around your

(23:14):
corporate documents, we're going to talk about that a little bit.
But they're going to look at your finances. They're going
to turn over every rock in your business in their
due diligence. And there's a way to do it. I've
been through this a lot, and there's good ways of
doing it, bad ways of doing it right, ways of
doing it wrong, ways of doing it. And what I
recommend as we do due diligence is let's prepare what

(23:40):
I call a deal room or war room, where we
have corporate documents in a secure spot. I can tell
you exactly what those documents are going to look like
and when they're going to and there's a timing to
release those documents. For instance, the last due diligence I
went through, the buyer wanted to see a customer list. Well,

(24:04):
customer list is one of your parts of your secret sauce, right,
So let's say this due diligence is a sixty day process.
If they're asking for customer lists in the first two weeks,
that is inappropriate, right, it is essential part of their review.

(24:24):
But the customer list should come in the last ten days,
not in the first two weeks. And that's just one example.
There is an appropriateness to the timing of each request.
But what I recommend is, let's put these corporate documents,
all of your finances right into a secure room digital

(24:47):
and when they send the request over, we'll go through
the process of doling out the information on an appropriate timeline. Again,
this is something we do all day every day. We
know what those requests are going to look like, and
we know exactly when we deliver that information. As a

(25:07):
side note, a core component to this is not only timing,
but it's the quality of those reports. If those reports
are clear and concise, if you have everything they ask
for and it's tight and buttoned up, what it will do.
It will give you credibility in the process. And I've

(25:30):
seen this a lot that credibility can affect negotiation. In
other words, if the buyer or the investor, if they're
looking at your operation and they see that you are organized,
you've got your KPIs intact, you know how you're running
your business, you know how you want to run your business,

(25:52):
and what the goals are, the metrics and the KPIs
around that, they will be much more excited about investing
in your business, to be a partner in your business,
and a lot of times it can lead to a
better negotiating environment when we look at price and terms.
So having that due diligence review, having your stuff in

(26:13):
order can affect the quality of the deal in the partnership.
Everybody looks at price or a loan amount. Let's say
you've got a ten million dollar company and you need
a million dollars in terms of an investment, working capital,
growth repairs, additional equipment, whatever the need is for that

(26:37):
million dollars. A lot of people kind of focus on, Okay,
I'm going to get a million, or I need a million,
I'm going to get a million. But the terms of
that deal are radically, radically, radically important, and a lot
of times we focus on the amount, we focus on
the price, we focus on the loan, focus on the investment,

(27:02):
but we ignore the terms of the deal. And I
can tell you through again making a few good decisions
in my life and making a lot of poor decisions,
the terms of the deal will bite you in the
butt three years, four years, five years from now. So
let's look at the term sheet. Let's look at the

(27:23):
terms of the deal, because that's going to make all
the difference down the road. When you go to gift
your business, you go to sell your business, how you've
structured the terms of this venture capital funding, if you
go that route, is going to make all the difference
in the world. And then the investment, the VC, the
venture capital fund, the venture capital team, they will be

(27:47):
involved in your operations. Now, some of them, depending on
their management philosophy, may be very involved. Right. They may
have a physical presence in your facility, or they may
do it. If we had one case where the company
was located in the southeast and the venture capital fund

(28:08):
was in the Midwest, they did everything once a month
via zoom. That's fine. They may be on site, they
may be one thousand miles away, but they will be
involved in your business. Some of them have a very
hands on approach in philosophy. They will get day to

(28:29):
day updates on what you're doing. Others take a very
much of a lower profile. They're not as involved as
the old saying you know in your grill right. Some
of them are going to be very involved. Others are
not picking the right partner and understanding their style through

(28:50):
history demonstrated style of how they're going to be involved
in your operations critical, but they will be involved. Typically,
those funds come in rounds. For instance, let's say you
have a new product coming out and it's in development,
You've gone through R and D, it's getting ready to

(29:12):
be manufactured but not yet commercialized. They may look at
that and say, okay, you need a million dollars to
roll this out. We buy into it. We believe in
that we're going to roll it out at fifteen percent
on the pre revenue side. So in other words, they'll
give you fifteen percent of that million dollars to get

(29:35):
the product through the manufacturing process. Then once the product
is sold, they'll give you another thirty percent, and then
they're going to deliver those funds in rounds, and typically
the rounds are tied to deliverables, so they're going to
give that second round of thirty percent once they see

(29:58):
that the product has been manufactured and you've got customers
that are buying that product, then they're gonna dole out money. Really,
what they're doing is they're trying to mitigate their risk
and instead of giving you fifty percent or seventy five
percent up front, they're gonna dole that money out into

(30:18):
rounds and they're gonna watch the development and the deliverable
of your product or your service. Thank you for listening
to the Chuck Crumpton Show. We would love your comments
and would greatly appreciate your five star rating on the show.
We want to make this bigger and better so we
can serve more folks, more business owners around the US.

(30:41):
If you have any questions, any thoughts, any ideas on
how the show can get better, please email me directly
at Chuck at Bullstreet Mergers dot com, Chuck at Bullstreet
Mergers dot com, and I hope you have a great week.
Thanks for tuning in.